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(Reuters) - Apple Inc sold the most number of smartphones globally in the fourth quarter, overtaking Samsung Electronics Co Ltd for the first time since 2011, according to research firm Gartner. Apple sold 74,832 smartphones to end users worldwide, ahead of the 73,032 phones sold by Samsung, according to Gartner's report. The success of big-screen iPhon […]

By Edwin Chan and Gerry Shih SAN FRANCISCO/BEIJING (Reuters) - Two years after U.S. legislators branded it a national security threat, China's Huawei Technologies Co Ltd is planning a campaign to win over U.S. consumers, rolling out new mobile phones and wearable devices backed by a marketing effort. China's second-largest smartphone maker, already […]

By Julia Fioretti and Leila Abboud BRUSSELS/BARCELONA (Reuters) - The European Union is looking to sign agreements with China and Japan and the United States to cooperate on developing the next generation of mobile broadband as it seeks to help its companies catch up in the race to develop such technologies. Europe, once a leader in the 1990s in the second-g […]

BRUSSELS (Reuters) - The European Union's antitrust chief has met Google Executive Chairman Eric Schmidt as she seeks to resolve a four-year investigation into complaints that the Internet search giant abuses its dominance. European Competition Commissioner Margrethe Vestager met Schmidt on Monday, her spokesman Ricardo Cardoso said in an email. In rece […]

By Edward Taylor FRANKFURT (Reuters) - General Motors is launching its digital Onstar connection service in Europe this year, offering Opel and Vauxhall buyers free car connectivity for the first year after purchase. Cars are equipped with their own mobile phone SIM card, enabling Opel to get in touch with a driver if an airbag deploys and alert emergency se […]

By Eric Auchard BARCELONA (Reuters) - STMicroelectronics said on Tuesday it expected a second year of growth in its wireless business in 2015, following years of losses, a resurgence that eventually could help Europe's largest semiconductor maker hit overall profit margin improvement goals. Speaking to financial analysts at the annual Mobile World Congr […]

Apple’s latest new smartphone models, the iPhone 6 and iPhone 6 Plus, were largely responsible for the company’s record-smashing holiday quarter. And that colossal quarter didn’t just smash Apple’s own records… it was the most profitable quarter any company has ever reported. Now, more news is trickling out following Apple’s killer holiday season: According […]

Everyone wants their smartphone to have a killer camera and megapixel counts don’t tell the entire story by any stretch of the imagination. PhoneArena draws our attention to a new survey of photography experts conducted by Teleguru.pl that really looks like the final word on smartphone camera quality for this generation of devices. FROM EARLIER: Benchmark te […]

Beli Buku Online

Just a decade ago Indonesia was on the brink of catastrophe. Things have taken a dramatic turn for the better, says Simon Long.

COUNTRIES generally hit the headlines only when the news is bad. In Indonesia it has often been spectacularly bad. A decade ago there were fears that the country might disintegrate in a welter of violence, piracy and mass migration. Its former dictator, Suharto, set new standards for kleptocracy. As he fell in 1998, the economy collapsed. The Bali bombing of 2002 that killed more than 200 people was one of a series of such attacks, and the lingering danger of Islamic terrorism was recalled by another murderous blast in Jakarta in July this year. The country is prone to natural disasters too, from the tsunami that devastated parts of Sumatra in 2004 to this month’s deadly earthquake in Java.

So Indonesia has an image problem. Foreigners may not realise, its boosters defensively suggest, that the world’s third-largest democracy and fourth most populous country, with more Muslims than any other, is actually doing rather well. It enjoys political stability under a popular incumbent president, Susilo Bambang Yudhoyono (pictured above). The bombing in Jakarta was the first such atrocity for nearly four years. Economic growth has slowed, but the country has withstood the global slump well. Of big countries, only China and India are growing faster.

It still has enormous problems. Separatist tensions have eased, but it remains prone to sectarian and ethnic violence. Mr Yudhoyono has not met his promise in 2004 of halving the number of people living below the government’s poverty line. More than 15% of Indonesia’s 240m people are poor. Unemployment is high, at about 8%, and the workforce is growing faster than in any other country apart from India and China. Inequality has actually widened a little. Those who looted the country under Suharto, and the soldiers who connived at terrible abuses, have enjoyed almost total impunity. Indonesia is still one of the world’s most corrupt countries. Its infrastructure is in woeful shape. And as another El Niño weather pattern takes hold, choking smog caused by forest fires is already smothering parts of Sumatra, drawing attention to Indonesia’s role as the world’s third-largest emitter of carbon.

Causes for hope

There are, however, four big reasons for optimism. The first is demographic. Over the next few years, thanks to a combination of a young population and a falling birth rate, Indonesia will see a surge in the ratio of its working population to the number of dependants. Next year, for the first time, more than half the population is likely to be living in urban areas, implying a further boost to consumption, the country’s main source of economic growth.

Second, fiscal restraint in recent years has left the government with the resources to spend more on Indonesia’s deficient infrastructure and public services. Having withstood the slump of the past year remarkably well, Indonesia is well placed to maintain solid growth rates for years to come. Considered a basket-case not so long ago, it is now seen as an extra “I” in the BRIC group of big, fast-growing emerging markets (Brazil, Russia, India and China).

Third, Mr Yudhoyono’s re-election in July gives him a mandate for the reforms Indonesia needs. His victory probably owed much to his reputation as a doughty warrior against corruption, and to his policy of giving cash handouts to the poor. In the election campaign he and his running-mate, Boediono, a well-respected former central-bank governor, were attacked as “neo-liberals” by opponents playing the card of anti-foreign economic nationalism, but many voters simply seem to have shrugged this off.

And that leads to the fourth reason for optimism. Despite serious flaws in the electoral system and in the mishmash of parliamentary and presidential constitutions Indonesia has designed for itself, it seems likely to enjoy a period of political stability. Democratisation has been a mess, and much needs fixing. But Mr Yudhoyono now has the breathing-space to try. (source: The Economist)

Executives around the world are working longer hours, taking on additional responsibilities, and experiencing higher levels of stress as they struggle to address the economic downturn, according to a McKinsey Quarterly survey.1 What’s more surprising, rather than feeling as turbulent as the economy, executives say they feel relatively stable and content about their companies, their work, and their performance as business leaders since the crisis began. All is not well, though. Beyond the averages—and the executive suites—middle managers report dramatically lower levels of contentment than their more senior colleagues do, as well as less of a desire to stay with their current employers.

In this survey, a range of executives—from corporate directors and CEOs to middle managers—were asked if and in what way the crisis has led to changes in their professional roles and the ways in which they spend their time on and off the job. They also responded to questions about their levels of physical and mental stress and its sources, rated their own performance as business leaders and the performance of their superiors, and identified the capabilities and mind-sets they have found helpful for tackling the new economic conditions.

Most respondents are working more hours since the crisis began, and nearly 40 percent have more responsibilities without the benefit of a new title. But although stress levels have increased, most executives say they can cope. Further, most find their work more exciting and meaningful than they did before the crisis, and almost all—95 percent—are at least somewhat satisfied with their own performance as business leaders. Far fewer are impressed with the work of their direct superiors. As for middle managers, compared with more senior colleagues, they are less committed to staying with their companies, less enthusiastic about their work, less satisfied with their own performance, and far less satisfied than more senior executives with how their bosses are doing.

In the industry: The future of oil

Jeroen van der Veer: Even if you are in the middle of a short-term economic crisis, I think it is very good to keep your eyes on the long term. So if I think about the long term in the energy industry, we take the year 2050—40 years from now—as a reference year in our mind and then we see three things. Energy demand will double, because we go from 6 [billion] to 9 billion people, and all people like to transport themselves and they like to have electricity at their home. So, even taking energy saving into account, that still works out as doubling of energy demand. Secondly, the classic oil and gas industry—what we normally refer to in our jargon as easy oil, easy gas—is not enough to supply all that demand. And thirdly, CO2, carbon dioxide, is already a problem now. And the solutions to what you can do about CO2? There are no easy solutions.

That’s the long-term business environment for where to position your company. Now short term is quite interesting. You have the economic recession that drives, at this moment, lower demand. So here you see, basically, you have a kind of long-term trend of energy demand going up. But now we have a dent in the short term. If the economy comes out of the economic recession—and that will happen, I don’t know when—you will see energy demand goes again up and it was only a small blip or a small dent.

And then we expect quite a robust pricing environment for energy because there are not any longer cheap solutions left to easy oil, left to easy gas. Or, if you take it to the alternative energies: alternative energies will come. We are absolutely convinced. But they will not be very cheap for the consumers.

Ivo Bozon: What’s your expectation around all the alternative energy policies? How far will they go, and will they dramatically influence the ultimate demand for oil and gas?

Jeroen van der Veer: The majority at this moment is fossil fuels. Then you have this huge growing energy demand in the long term. We think that in 2050, still a very large part will be fossil fuels but, relatively, alternative energies will have gained in market share and the total pie will be bigger.

How will this go? I think at this moment, if you take subsidies out, most alternative energies are still too expensive for consumers. So the first priority is with technology and scale, of course. Can you make alternative energies lower cost? If you have achieved and you know how to do that, then consumers are likely to buy it. The second phase is that, because the costs are now more acceptable for the alternative energy, then you can build a lot of capacity. So first technology development, lower costs, building the capacity; then the people have to deploy it; and then you make an impact on the CO2 problem.

That’s one part. The second part is that in fossil fuels—think about coal or oil, and to a lesser extent natural gas because that’s relatively clean—you can try to work on CO2 solutions. So can you do carbon capture and storage? If you do that, then you take the disadvantage of fossil fuels away. And that is the parallel path. And, between that, you may see competition and maybe they accelerate each other. That’s the good news for the people.

Ivo Bozon: In that world you see reasonable, stable growth still—even to doubling, you say—of the fundamentals of oil and gas demand?

Jeroen van der Veer: Depends which scenario. But if you say that, at this moment, fossil fuels are about 90 percent of total energy supply, and 10 percent is nuclear, and then water power and wind are still very small, then suppose that in the year 2050, 70 percent is still fossil fuels—or even if you take 60 percent, doesn’t matter, because 60 percent of a market that is double by 2050 people can calculate. That means that, in fact, in 2050 you sell more fossil fuels than today. And renewables have become quite big because the size of the cake is twice what it is now.

The downturn: A faster cycle

Jeroen van der Veer: Especially between Lehman’s and January of this year, we had a much faster cycle. Basically we took a daily view with my CFO: a review of the markets, what was happening internally with our cash, any news about customers. And then we asked ourselves every evening, “Do we need additional decisions or additional directions?” Now since January, I’m glad to say that we could stop the daily cycle. But in fact, you are still very much on top of day by day or week by week to see whether [something is going on]. You don’t wait for the monthly reports at all. So that is the whole “steering.” I call using your feedback “steering” because of the quick cycle.

The second one is communication. Not only internal communication—people feel uncertain, so they like to understand how the bosses think about it—but external: with politicians, ministers. And nearly every discussion you start in the first two minutes with not necessarily the subject you have to discuss, but [instead with]: “What do you think? How long will it last?” And people, they expect an answer. You better think about that. So you have to think a lot about communication. Externally and internally, what are your key messages?

On leadership: From A to B

Jeroen van der Veer: I think the most simple is, I say, from A to B. And I can explain that. A is very simple: you take stock of where you are today. I did this when I was refinery manager a long time ago. So, know the pluses and minuses of this refinery. Then you should be able to explain that in one or two minutes to all the operators and workers of the refinery. And why is it so important that you have honest judgment? Because if you are too optimistic or too pessimistic, then you don’t get credibility from your own workers. So a good assessment provides you: you think, “Yeah, my boss knows what he’s talking about. Yeah. Don’t like it but, yeah, maybe that’s how it is.”

That’s position A. Now, okay, that’s fine. But that’s not leadership. Then you have to work out, what is position B? If I take the example of the refinery, where should the refinery be in three or four years from now? Again, if you dare come with a 50-page PowerPoint presentation, you are nowhere. The art is to explain that in the same one to two minutes in very credible terms and you give some key arguments why position B is a good place. Okay. So that’s the picture of where the refinery has to go and the key arguments, and people say, “Yeah, yeah, yeah. I’d like to be there. Yeah, I see that.” But again, that’s not leadership. That’s just defining A, defining B.

The third task, which is usually where it goes wrong, is when you have to say: “You have to do this on Monday morning, and you have to do that on Monday morning. And today, it is Friday.” And so you need a way really to organize and set clear accountabilities and milestones, especially the ones which have to happen in the very short term on the path from A to B. This is basically a concept that I fostered over the years that has always helped me. And, I say this with a smile, this is about enough.

Ivo Bozon: You’re known to be a very strong leader. How do you think people would describe your style?

Jeroen van der Veer: I leave that to those people. What you hear back are words like “quite people oriented,” “ability to listen”—no, I think that’s enough.

If the company is in difficulties, people have a tendency—especially senior people have a tendency—to walk with their head down. And in the operations, they say, “Okay, the difficulties are somewhere else. It’s not us.” But in the end, what needed to be done for the reputation: we had to make certain changes in Shell, which basically affects all people. So in that phase, it is quite clear what you expect from the different parts of the company and the communication around that—and that all the communication is then about simplicity and consistency as well. That’s how you stabilize the firm. And after the firm is stabilized and you move it forward, you do that with an organizational stability. And then people think, “Hey, that’s nice. That’s fine.”

We keep on doing that. But life is not that easy, because, in the meantime, the external business environment changes, insight on energy demand changes, insight into CO2 and international politics changes. So you have to make sure that, in the stabilization phase, people don’t get too slow or too . . . the word complacency is a bit negative . . . but that you again get a mismatched environment. So then you have to be on time to bring those new external aspects into the management; and not just because you are in a crisis. And what at the end of the day counts is, of course, not so much whether you bring those new things into it, but whether you have, as leaders, organized enough speed to make the next adaptation. And that story continues itself all the time.

Business in society: Playing by the rules

Jeroen van der Veer: I have a philosophy for myself, and I’d like first to share that and then to add how I look back at the last ten years. In my view, the role of the chief executive or the first lead of a company is that, if you go for long-term success of the company or long-term shareholder value—because that is then the reward—then the only way you can do that is for the chief executive, with his people, to balance the interests of various stakeholders. As stakeholders go, that’s not only shareholders and employees or customers: they’re people who live near your operations, they’re the governments or the countries where you work, and maybe the NGOs.1

So you have to think that there are many stakeholders around the company. The job of the top team is to balance that. If you are successful in that, then I’m convinced that you create long-term shareholder value, you create happy customers, you create happy employees, happy neighbors, and you have a good reputation. It goes in that sequence. I think that if I look back at the last ten years, it may be that the [traditional] shareholder-value model at least was perceived [negatively] by society. But I think the society was correct in thinking that. Sometimes the interests of shareholders were very dominant compared to all other stakeholders’ interests. And then of course you create, over time, criticism. And I think we are in such a phase now.

Ivo Bozon: Do you think the expectations of society of the role that large, international, global companies play will change? Do you believe that society may ask bigger roles of companies in society? Or different roles?

Jeroen van der Veer: Well, at least I’ve experienced that in companies like Shell—involved in energy—that it is quite, quite often that you are in a situation that people have demands for Shell that we should do certain things. I understand why people ask that, but my answer’s been basically, “Hang on. We are not the government of this country. This has to do with your government. Basically, a government sets the conditions and the rules, the laws and the regulations of the land. And within those rules we have to play the game.”

Or, if you take soccer terms or football terms, the government has said, “This is the field. These are the rules. There is the referee. And then we can start the game.” And then, of course, as a player in the game we may have comments on the size of the field, or the condition of the field, or the referee. But the roles are really different.

I think that will continue. Sometimes the criticism of Shell is in fact criticism of governments. Having said that, in this world we have to step up in our communication. It was already ten years ago when one of my predecessors said it very well. He said, “If you work in a big company, forget that society will think, ‘Trust me as a big company.’ The automatic trust is not there.” Society says, “Show me,” “Be transparent,” and, “Why should I believe you?” The world is much more critical. And if you go from this “trust me” to this “show me” world, then it is very important that the senior leaders are very good communicators. I started as an engineer, so we all have to learn that over the years.

Ivo Bozon: After the Brent Spar affair, you’ve spent a lot of time on the license to operate. You’ve innovated in the way you report societal performance of Shell; you’ve innovated in the way you discuss with different stakeholders around new projects. Is your sense that that actually gives you a competitive edge?

Jeroen van der Veer: Let me give you an example. We have certain projects in Shell, which were from a technical point of view—my technical and economic point of view—good projects. But you run into either the perception that they were environmental problems or the people where the projects had to be built didn’t like it. If you then go to the base roots of what went wrong, if anything went wrong, and how could you have done it better, [the problem] is usually in the very early stages of project preparation where we’re making the choices between various concepts.

It is not so much the engineering side of it, but it is: How did we read the local population? What was the real interest there? How could we help find jobs? Were there environmental aspects? How did we deal with that? So sensitivity to the many other stakeholders, or their perceptions about that, can help you to get projects better off the ground and with more harmony. If you are better at that, then you are more successful in developing those large-scale projects; and you realize every time that you develop or start up a complex project that it is [essentially your] best business card for the next project.

So in a way the answer is yes: sensitivity on the soft aspects or the many other aspects, which have nothing to do with technology, you can get out of that a competitive advantage. And then the last thing I’d like to say is that now we have a very disciplined approach for large projects—how we start them—just to make sure that people don’t ignore all those aspects I just mentioned.

The big picture: Climate change

Jeroen van der Veer: The opportunity for the industry is to provide more energy for lower CO2. That’s how I say it for Shell. Our job? Very simple. More energy, lower CO2. But how can we do that? Now we can say to the governments, more energy is, for instance, more oil and gas; lower CO2 is successful next-generation biofuels. And then we can say: okay, more oil and gas but can we get, for instance, carbon capture and storage off the ground? It costs money to build it. It costs money to do it. And it costs, after that, money to monitor it. If we would do that and other companies would not do that, then you don’t have a level playing field. We would go out of business, and then the society doesn’t get more energy for lower CO2.

So you can say the role of the industry is to show what you can do as a company. Then we have to make a business model, but you need governments to help you to make the business model. They can say, “We make cap and trade. We make sure that, with CO2, if you store it in the ground, you get a revenue prize for that.” And then you build business models and, if you are successful in that, it can become big. So here you see a classic example that, in the whole climate change debate, companies have to indicate what they can do about CO2, and when it will work, and what this costs them to go very fast in it. And then the governments have to set regulations around it. That’s one.

The problem for governments is not that easy, because the whole CO2 problem is a global problem. And if we have a set of regulations in country A, and in a neighboring country we have a complete other set of regulations, then probably you have not only an unlevel playing field for the energy industry but you may have an unlevel playing field for every energy-intensive industry—think about the cement industry or the chemicals industry. So that’s why conferences like Copenhagen, and more to come that have to build international frameworks, are so important because otherwise, if you get too many unlevel playing fields in the world, then it will hamper economic growth and it will slow down the lowering of CO2 in the atmosphere. So it is double bad news.

Management lessons: Looking back on a long career

Ivo Bozon: What is different in that leadership role? What is different about being the true global center point of such a large company?

Jeroen van der Veer: Different compared to 20 years ago or 30 years ago?

Ivo Bozon: Compared to roles in smaller companies—being a leader of a smaller unit, either a country unit or a division. Often you see a break point in the capabilities that people have to have to be able to fill the next-level role as a global leader.

Jeroen van der Veer: I think two come to mind. Even if you are a refinery manager, which is one of my anchor points, and you do something at the top of the refinery—and it was one of the largest refineries in the world—but I can still, in the Netherlands, I can go on my bicycle to the shop floor to see that a message arrived. If you are a global CEO, you can take spot checks. We still try to do that. We have all kinds of feedback mechanisms. You can measure it. But there is always the danger that—and it is an old cliché but it is there—you lose contact between the top floor and the shop floor. So you have to organize for yourself a way that that does not happen.

And if it happens, people will feel it quickly. I say always keep your feet on the ground—keep on listening. And when I say feet on the ground, [I mean] size 12 in the States, [size] 46 here. So a big foot helps. That’s one. The other problem, the other big difference of a chief executive is that you have to really to think, “Suppose I don’t do anything. What would go wrong?” There is no point to spend my energy if basically the organization would already take care of that itself. So you have to ask yourself—I have to ask myself—all the time, “Suppose I wouldn’t do anything here? I simply let it go. Will it solve itself? Or may it solve itself too slowly? Do I interfere? And if I interfere, what do I try to achieve by that?”

And, okay, that’s the easy part. But the other part of this story is many of the things I do now are not even for my successor but for the successor of my successor. I think about that. We are setting up now already research and development for how we can get oil out of the ground that is much more difficult in an oil sense. This is years of research, development. But we have already looked into where we can buy or get access to the acreage now.

So you have to think really about the 10- or 20-year [effects of] what you do today. And if you don’t do that as the senior leader, the chances that you get the organization motivated about that over such long time horizons is pretty low. So you have to drive not only what would happen if I don’t interfere, but at the same time you have to force yourself to think, “Well, which steps do I take for myself today? What do I promote?” And maybe somebody in 2025 will say, “Thank you very much.” But that is not the normal nature, because the normal nature is that people like to be busy with the very short term and not with the long term.

It gives me more inspiration to think about the regrets than about the achievements. Because at the regret side, it is much better if you think about it because then in driving the company forward you don’t create new regrets. And if I think about not only the last 5 years but the last 20 years, it is quite often that I say to myself, “Hang on. You had, already, the direction of the thinking. Maybe you had not all the proof, but the gut feeling, the intuition, was there. You could have made more speed. But then sometimes you were not sure, or you felt that a lot of other people were thinking differently.” There were always excuses. And sometimes we made good speed; we’ll say that as well. But I’m relatively impatient. And if I look back sometimes I think, hang on, we should have made even more speed. Usually my regrets are those kinds of things.

Debt Markets

The Coming Dollar Collapse

Matthew Craft

Inflation fears have many predicting a large dollar drop. One Federated portfolio manager is prepared.

2009/04/22

Budget busting government spending, trillions in Treasury debt and the lowest interest rates on record have many worried about inflation and the damage it could inflict on the dollar once the global economy recovers. Ihab Salib, who oversees $3.5 billion in bond funds at Federated Investors in Pittsburgh, has already started laying his bets.

Salib has taken positions in favor of commodity-rich countries and against those whose central banks have taken to cutting rates and buying assets from banks, the tactic known as quantitative easing. That means he has taken a shine to Australia, Venezuela and Brazil, which stand to benefit from a falling dollar through higher commodity prices, and is wary of the United Kingdom and Switzerland. He avoids U.S. dollar assets when he can. One fund carries no dollar exposure at all (see Betting On The Buck).

The knocks against the dollar are rooted in classical economic theory — the Federal Reserve and Treasury have flooded the world with greenbacks. Because the dollar is a reserve currency and because US Treasury debt has virtually no default risk, investors have sucked up as many dollars as the US has been willing to provide. But that’s sidelined money. Eventually international investors are going to want to sell dollars and buy performing assets.

Or, those investors are going to realize that they have too much dollar risk and are going to seek diversity by holding other currencies. This will drive foreign currencies higher against the dollar. As foreign currencies rise, particularly in the emerging markets, resource demand from the developing world, coupled with increased demand from the U.S., could drive commodities prices higher again.

We saw some of this in 2008 though commodities prices were also driven by speculation from highly leveraged hedge funds. This is one of the reasons that commodities prices spiked so sharply and then fell so quickly when the credit crisis hit and hedge funds were forced to sell securities to meet margin requirements as prime brokers forced them to deleverage.

At the moment , governments and central banks in the US are more concerned about deflation as falling demand has brought consumer and commodities prices lower so they’ve cut interest rates and printed money to try and counter the trend.

“When you do that, your currency doesn’t fare very well,” Salib says.

When the recession ends, investors’ willingness to take on risk and look abroad will also push against the dollar and the Japanese Yen, the two safe havens’ currencies. His retail international bond fund has 22% of its assets in Japan, versus 43% for his benchmark. The Japanese Yen hit a 13-year high against the dollar last year when investors rushed to pay off Yen-denominated debt used to pay for purchases elsewhere (see Yen Works Like A Stock Barometer).

Along with some of Wall Street’s most storied firms, a certain vision of capitalism has collapsed. How we restore faith in our brand.

Francis Fukuyama

NEWSWEEK

From the magazine issue dated Oct 13, 2008

The implosion of America’s most storied investment banks. The vanishing of more than a trillion dollars in stock-market wealth in a day. A $700 billion tab for U.S. taxpayers. The scale of the Wall Street crackup could scarcely be more gargantuan. Yet even as Americans ask why they’re having to pay such mind-bending sums to prevent the economy from imploding, few are discussing a more intangible, yet potentially much greater cost to the United States—the damage that the financial meltdown is doing to America’s “brand.”

Ideas are one of our most important exports, and two fundamentally American ideas have dominated global thinking since the early 1980s, when Ronald Reagan was elected president. The first was a certain vision of capitalism—one that argued low taxes, light regulation and a pared-back government would be the engine for economic growth. Reaganism reversed a century-long trend toward ever-larger government. Deregulation became the order of the day not just in the United States but around the world.

The second big idea was America as a promoter of liberal democracy around the world, which was seen as the best path to a more prosperous and open international order. America’s power and influence rested not just on our tanks and dollars, but on the fact that most people found the American form of self-government attractive and wanted to reshape their societies along the same lines—what political scientist Joseph Nye has labeled our “soft power.”

It’s hard to fathom just how badly these signature features of the American brand have been discredited. Between 2002 and 2007, while the world was enjoying an unprecedented period of growth, it was easy to ignore those European socialists and Latin American populists who denounced the U.S. economic model as “cowboy capitalism.” But now the engine of that growth, the American economy, has gone off the rails and threatens to drag the rest of the world down with it. Worse, the culprit is the American model itself: under the mantra of less government, Washington failed to adequately regulate the financial sector and allowed it to do tremendous harm to the rest of the society.

Democracy was tarnished even earlier. Once Saddam was proved not to have WMD, the Bush administration sought to justify the Iraq War by linking it to a broader “freedom agenda”; suddenly the promotion of democracy was a chief weapon in the war against terrorism. To many people around the world, America’s rhetoric about democracy sounds a lot like an excuse for furthering U.S. hegemony.

The choice we face now goes well beyond the bailout, or the presidential campaign. The American brand is being sorely tested at a time when other models—whether China’s or Russia’s—are looking more and more attractive. Restoring our good name and reviving the appeal of our brand is in many ways as great a challenge as stabilizing the financial sector. Barack Obama and John McCain would each bring different strengths to the task. But for either it will be an uphill, years-long struggle. And we cannot even begin until we clearly understand what went wrong—which aspects of the American model are sound, which were poorly implemented, and which need to be discarded altogether.

Many commentators have noted that the Wall Street meltdown marks the end of the Reagan era. In this they are doubtless right, even if McCain manages to get elected president in November. Big ideas are born in the context of a particular historical era. Few survive when the context changes dramatically, which is why politics tends to shift from left to right and back again in generation-long cycles.

Reaganism (or, in its British form, Thatcherism) was right for its time. Since Franklin Roosevelt’s New Deal in the 1930s, governments all over the world had only grown bigger and bigger. By the 1970s large welfare states and economies choked by red tape were proving highly dysfunctional. Back then, telephones were expensive and hard to get, air travel was a luxury of the rich, and most people put their savings in bank accounts paying low, regulated rates of interest. Programs like Aid to Families With Dependent Children created disincentives for poor families to work and stay married, and families broke down. The Reagan-Thatcher revolution made it easier to hire and fire workers, causing a huge amount of pain as traditional industries shrank or shut down. But it also laid the groundwork for nearly three decades of growth and the emergence of new sectors like information technology and biotech.

Internationally, the Reagan revolution translated into the “Washington Consensus,” under which Washington—and institutions under its influence, like the International Monetary Fund and the World Bank—pushed developing countries to open up their economies. While the Washington Consensus is routinely trashed by populists like Venezuela’s Hugo Chávez, it successfully eased the pain of the Latin American debt crisis of the early 1980s, when hyperinflation plagued countries such as Argentina and Brazil. Similar market-friendly policies are what turned China and India into the economic powerhouses they are today.

And if anyone needed more proof, they could look at the world’s most extreme examples of big government—the centrally planned economies of the former Soviet Union and other communist states. By the 1970s they were falling behind their capitalist rivals in virtually all respects. Their implosion after the fall of the Berlin Wall confirmed that such welfare states on steroids were an historical dead end.

Like all transformative movements, the Reagan revolution lost its way because for many followers it became an unimpeachable ideology, not a pragmatic response to the excesses of the welfare state. Two concepts were sacrosanct: first, that tax cuts would be self-financing, and second, that financial markets could be self-regulating.

Prior to the 1980s, conservatives were fiscally conservative— that is, they were unwilling to spend more than they took in in taxes. But Reaganomics introduced the idea that virtually any tax cut would so stimulate growth that the government would end up taking in more revenue in the end (the so-called Laffer curve). In fact, the traditional view was correct: if you cut taxes without cutting spending, you end up with a damaging deficit. Thus the Reagan tax cuts of the 1980s produced a big deficit; the Clinton tax increases of the 1990s produced a surplus; and the Bush tax cuts of the early 21st century produced an even larger deficit. The fact that the American economy grew just as fast in the Clinton years as in the Reagan ones somehow didn’t shake the conservative faith in tax cuts as the surefire key to growth.

More important, globalization masked the flaws in this reasoning for several decades. Foreigners seemed endlessly willing to hold American dollars, which allowed the U.S. government to run deficits while still enjoying high growth, something that no developing country could get away with. That’s why Vice President Dick Cheney reportedly told President Bush early on that the lesson of the 1980s was that “deficits don’t matter.”

The second Reagan-era article of faith—financial deregulation—was pushed by an unholy alliance of true believers and Wall Street firms, and by the 1990s had been accepted as gospel by the Democrats as well. They argued that long-standing regulations like the Depression-era Glass-Steagall Act (which split up commercial and investment banking) were stifling innovation and undermining the competitiveness of U.S. financial institutions. They were right—only, deregulation produced a flood of innovative new products like collateralized debt obligations, which are at the core of the current crisis. Some Republicans still haven’t come to grips with this, as evidenced by their proposed alternative to the bailout bill, which involved yet bigger tax cuts for hedge funds.

The problem is that Wall Street is very different from, say, Silicon Valley, where a light regulatory hand is genuinely beneficial. Financial institutions are based on trust, which can only flourish if governments ensure they are transparent and constrained in the risks they can take with other people’s money. The sector is also different because the collapse of a financial institution harms not just its shareholders and employees, but a host of innocent bystanders as well (what economists soberly call “negative externalities”).

Signs that the Reagan revolution had drifted dangerously have been clear over the past decade. An early warning was the Asian financial crisis of 1997-98. Countries like Thailand and South Korea, following American advice and pressure, liberalized their capital markets in the early 1990s. A lot of hot money started flowing into their economies, creating a speculative bubble, and then rushed out again at the first sign of trouble. Sound familiar? Meanwhile, countries like China and Malaysia that didn’t follow American advice and kept their financial markets closed or strictly regulated found themselves much less vulnerable.

A second warning sign lay in America’s accumulating structural deficits. China and a number of other countries began buying U.S. dollars after 1997 as part of a deliberate strategy to undervalue their currencies, keep their factories humming and protect themselves from financial shocks. This suited a post-9/11 America just fine; it meant that we could cut taxes, finance a consumption binge, pay for two expensive wars and run a fiscal deficit at the same time. The staggering and mounting trade deficits this produced—$700 billion a year by 2007—were clearly unsustainable; sooner or later the foreigners would decide that America wasn’t such a great place to bank their money. The falling U.S. dollar indicates that we have arrived at that point. Clearly, and contrary to Cheney, deficits do matter.

Even at home, the downside of deregulation were clear well before the Wall Street collapse. In California, electricity prices spiraled out of control in 2000-2001 as a result of deregulation in the state energy market, which unscrupulous companies like Enron gamed to their advantage. Enron itself, along with a host of other firms, collapsed in 2004 because accounting standards had not been enforced adequately. Inequality in the United States rose throughout the past decade, because the gains from economic growth went disproportionately to wealthier and better-educated Americans, while the incomes of working-class people stagnated. And finally, the bungled occupation of Iraq and the response to Hurricane Katrina exposed the top-to-bottom weakness of the public sector, a result of decades of underfunding and the low prestige accorded civil servants from the Reagan years on.

All this suggests that the Reagan era should have ended some time ago. It didn’t partly because the Democratic Party failed to come up with convincing candidates and arguments, but also because of a particular aspect of America that makes our country very different from Europe. There, less-educated, working-class citizens vote reliably for socialist, communist and other left-learning parties, based on their economic interests. In the United States, they can swing either left or right. They were part of Roosevelt’s grand Democratic coalition during the New Deal, a coalition that held through Lyndon Johnson’s Great Society in the 1960s. But they started voting Republican during the Nixon and Reagan years, swung to Clinton in the 1990s, and returned to the Republican fold under George W. Bush. When they vote Republican, it’s because cultural issues like religion, patriotism, family values and gun ownership trump economic ones.

This group of voters will decide November’s election, not least because of their concentration in a handful of swing states like Ohio and Pennsylvania. Will they tilt toward the more distant, Harvard-educated Obama, who more accurately reflects their economic interests? Or will they stick with people they can better identify with, like McCain and Sarah Palin? It took an economic crisis of massive proportions from 1929 to 1931 to bring a Democratic administration to power. Polls indicate we may have arrived again at that point in October 2008.

The other critical component of the American brand is democracy, and the willingness of the United States to support other democracies around the world. This idealistic streak in U.S. foreign policy has been constant over the past century, from Woodrow Wilson’s League of Nations through Roosevelt’s Four Freedoms to Reagan’s call for Mikhail Gorbachev to “tear down this wall.”

Promoting democracy—through diplomacy, aid to civil society groups, free media and the like—has never been controversial. The problem now is that by using democracy to justify the Iraq War, the Bush administration suggested to many that “democracy” was a code word for military intervention and regime change. (The chaos that ensued in Iraq didn’t exactly help democracy’s image either.) The Middle East in particular is a minefield for any U.S. administration, since America supports nondemocratic allies like the Saudis, and refuses to work with groups like Hamas and Hizbullah that came to power through elections. We don’t have much credibility when we champion a “freedom agenda.”

The American model has also been seriously tarnished by the Bush administration’s use of torture. After 9/11 Americans proved distressingly ready to give up constitutional protections for the sake of security. Guantánamo Bay and the hooded prisoner at Abu Ghraib have since replaced the Statue of Liberty as symbols of America in the eyes of many non-Americans.

No matter who wins the presidency a month from now, the shift into a new cycle of American and world politics will have begun. The Democrats are likely to increase their majorities in the House and Senate. A huge amount of populist anger is brewing as the Wall Street meltdown spreads to Main Street. Already there is a growing consensus on the need to re-regulate many parts of the economy.

Globally the United States will not enjoy the hegemonic position it has occupied until now, something underscored by Russia’s Aug. 7 invasion of Georgia. America’s ability to shape the global economy through trade pacts and the IMF and World Bank will be diminished, as will our financial resources. And in many parts of the world, American ideas, advice and even aid will be less welcome than they are now.

Under such circumstances, which candidate is better positioned to rebrand America? Barack Obama obviously carries the least baggage from the recent past, and his postpartisan style seeks to move beyond today’s political divisions. At heart he seems a pragmatist, not an ideologue. But his consensus-forming skills will be sorely tested when he has to make tough choices, bringing not just Republicans but unruly Democrats into the fold. McCain, for his part, has talked like Teddy Roosevelt in recent weeks, railing against Wall Street and calling for SEC chairman Chris Cox’s head. He may be the only Republican who can bring his party, kicking and screaming, into a post-Reagan era. But one gets the sense that he hasn’t fully made up his mind what kind of Republican he really is, or what principles should define the new America.

American influence can and will eventually be restored. Since the world as a whole is likely to suffer an economic downturn, it is not clear that the Chinese or Russian models will fare appreciably better than the American version. The United States has come back from serious setbacks during the 1930s and 1970s, due to the adaptability of our system and the resilience of our people.

Still, another comeback rests on our ability to make some fundamental changes. First, we must break out of the Reagan-era straitjacket concerning taxes and regulation. Tax cuts feel good but do not necessarily stimulate growth or pay for themselves; given our long-term fiscal situation Americans are going to have to be told honestly that they will have to pay their own way in the future. Deregulation, or the failure of regulators to keep up with fast-moving markets, can become unbelievably costly, as we have seen. The entire American public sector—underfunded, deprofessionalized and demoralized—needs to be rebuilt and be given a new sense of pride. There are certain jobs that only the government can fulfill.

As we undertake these changes, of course, there’s a danger of overcorrecting. Financial institutions need strong supervision, but it isn’t clear that other sectors of the economy do. Free trade remains a powerful motor for economic growth, as well as an instrument of U.S. diplomacy. We should provide better assistance to workers adjusting to changing global conditions, rather than defend their existing jobs. If tax cutting is not a path to automatic prosperity, neither is unconstrained social spending. The cost of the bailouts and the long-term weakness of the dollar mean that inflation will be a serious threat in the future. An irresponsible fiscal policy could easily add to the problem.

And while fewer non-Americans are likely to listen to our advice, many would still benefit from emulating certain aspects of the Reagan model. Not, certainly, financial-market deregulation. But in continental Europe, workers are still treated to long vacations, short working weeks, job guarantees and a host of other benefits that weaken their productivity and will not be financially sustainable.

The unedifying response to the Wall Street crisis shows that the biggest change we need to make is in our politics. The Reagan revolution broke the 50-year dominance of liberals and Democrats in American politics and opened up room for different approaches to the problems of the time. But as the years have passed, what were once fresh ideas have hardened into hoary dogmas. The quality of political debate has been coarsened by partisans who question not just the ideas but the motives of their opponents. All this makes it harder to adjust to the new and difficult reality we face. So the ultimate test for the American model will be its capacity to reinvent itself once again. Good branding is not, to quote a presidential candidate, a matter of putting lipstick on a pig. It’s about having the right product to sell in the first place. American democracy has its work cut out for it.

Fukuyama is professor of International Political Economy at the Johns Hopkins School of Advanced International Studies.